No housing crash on the horizon

By Katie Keir | September 30, 2022 | Last updated on December 6, 2023
3 min read
Home For Sale Real Estate Sign in Front of Beautiful New House.
© feverpitched / 123RF Stock Photo

In the wake of the Covid housing boom, where annual home sales set records and the “dollar volume of home sales relative to GDP hit unprecedented levels,” it should come as no surprise to anyone that the real estate market has been cannibalizing the economy.

For example, both residential investment and ownership transfer costs made up notable portions of GDP throughout the boom, at almost 9% and 3% respectively, warned Ben Rabidoux, founder and president of market research firm North Cove Advisors Inc. He led a session on how the housing market is affecting the economy during the Institute of Advanced Financial Planners’ 2022 symposium in Gatineau, Que on Thursday.

Amid skyrocketing investor demand and people’s fear of missing out (or FOMO) on real estate, what occurred was unprecedented: “We [had] never seen houses out-earn people, but we did. And that has set us up for where we are today,” Rabidoux said.

The medium-term picture so far isn’t entirely clear, he conceded, but Rabidoux doesn’t expect a housing crash. While home sales across Canada have declined by more than 40% in 2022 and active listings  have been weak as well, he noted that the plunge is from “peak levels.”

Further, “The declines [in real estate activity] are exaggerated,” in part due to distressed sales — where homeowners have been forced to sell in a weak market — and those transactions are “working themselves through the system.”

Rather than home prices bottoming, Rabidoux said they’re slipping “back to decade averages.” Demand is “very low” and “has to bounce,” he added, especially if inventory levels keep recovering as they began to in early 2022. Still, new home listings would have to rise almost 50% and reach pre-Covid levels for there to be true oversupply dangers, he explained.

So what we’re really seeing currently is “an interest rate story” where the fear of being burned by real estate is weighing on demand in the short term and overshadowing that FOMO that emerged, Rabidoux said.

But there are risks to watch out for, given the sizeable chunk of GDP activity that real estate has assumed.

First, Rabidoux highlighted what he deemed “a record gap” between residential investment and business investment, noting that “housing is sucking capital from productive investments” that could actually help build the economy. In particular,  real estate transfer costs are “triple the long-term average (being around that 3% level), so have become “nearly as large as core business investment.”

On top of that, there’s the massive affordability issue for clients in the face of rising interest rates and, thus, mortgage payments — weighing on their ability to consume and prop up the economy.

“Canadian households are extremely levered,” Rabidoux indicated, “and not just by our own historical standards.” The household effective interest rate is sitting at heights last seen in the 1990s, substantially affecting “even borrowers on five-year fixed mortgages.”

So how can advisors guide clients? With discretionary spending in for a pinch, cash flow analysis is of great value, as is taking a look at how, according to Rabidoux, people’s balance sheets are “more exposed to housing than ever.”

With housing weakness set “to break stuff” and there being “nowhere to hide from interest rates,” Rabidoux said to expect possible economic retraction of 1%. (An outlook session also from the IAFP symposium that was led by Pierre Cléroux, vice-president of research and chief economist at Montreal-based BDC, similarly suggested downside risk of a 1% decline for 2023, with an upside of 1% growth.)

Investors will need to brace for medium-term pain as the economy resets, will likely end of up paying more on their existing homes than expected and will need support with the psychological effect of perceived loss of value in their real estate investments.

On the upside, he added, while there could be a rise in consumer insolvencies from current levels, he suggests that “credit trends look very good for now.”

A piece of advice was it’s likely “not a good time to buy big-ticket items,” where investors will lean on savings amassed throughout the pandemic to ride the inflation, interest-rate and market volatility wave.

Investment Executive was a media sponsor for the Institute of Advanced Financial Planners symposium.

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Katie Keir

Katie is special projects editor for and has worked with the team since 2010. In 2012, she was named Best New Journalist by the Canadian Business Media Awards. Reach her at